The Shehbaz Sharif government has expressed its ‘resolve’ to increase Pakistan’s tax-to-GDP ratio to 13% in the next three years. The basic principle while framing the 2024-25 budget was to expand the tax base. A public budget links tasks to be performed with the resources required to accomplish those tasks, ensuring that money will be available to wage economic war, provide housing or maintain streets. Most of the work in drawing up a budget is technical, such as estimating how much it will cost to feed a thousand shut-ins with a Meals on Wheels program or how much revenue a 1 percent tax on retail sales will generate. But public budgeting is not only a technical process; it is also necessarily and appropriately political.
Current budget reflects choices about what government will and will not do. They reflect the public consensus about what kind of services governments should provide and what citizens are entitled to as members of the society. Should government provide services that the private sector could provide, such as water, electricity, transportation and housing? Do all the citizens have a guarantee of health care, regardless of ability to pay? Is every one entitled to some kind of housing? Should government intervene when market failures threaten people’s savings and investments?
This budget reflects priorities between police and flood control, day-care and defence. The budget process mediates among groups and individuals who want different things from government and determines who gets what. These decisions may influence whether the poor get job training or the police get riot training either one a response to an increased number of unemployed. This budget reflects citizens’ preferences for different forms and levels of taxation as well as the ability of some taxpayer groups to shift tax burdens to others. The budget indicates the degree to which the government redistributes wealth upward or downward through the tax system. At the national level, the budget influences the economy and so fiscal policy influences how many people are out of work at any point of time.
This budget also reflects the degree of importance that legislators place on satisfying their constituents and responding to interest group demands. Budgets provide accountability for citizens who want to know how the government is spending their money and whether government as generally followed their preferences. Budgeting links citizen preferences and governmental outcomes; it is a powerful tool for implementing democracy.
The budgetary decision-making provides a picture of the relative power of budget actors within and between branches of government as well as of the importance of citizens, interest groups and political parties. Such budgeting is both an important and a unique arena of politics. It is important because of the specific policy decisions it reflects: decisions about the scope of the government, the distribution of wealth, the openness of government to interest groups and the accountability of government to the public at large. It is unique because these decisions take place in the context of budgeting, with its need for balance, its openness to the environment and its requirement for timely decisions so that government can carry on without interruption. Such public budgets clearly have political implications. Before we delve into the reasons for the gap, it should be acknowledged that the budget proposes revoking certain tax exemptions enjoyed by privileged sectors of the economy. This has been done to raise annual tax collection, which is a sine qua non for qualifying for the three-year Extended Fund Facility being sought from the IMF. It was expected that the new budget would have significant measures to broaden the tax base. The reality of the taxation measures announced in the budget does not match minister’s rhetoric.
One does not have to be a financial wizard to see that the budget still follows the same tried, tested, flopped and, therefore, oft-rejected trope of milking those already in the tax net even more. A large part of the additional revenue measures being proposed target the same two segments – the salaried class and documented businesses – that already pay the bulk of personal and direct taxes. In fact, this budget reflects the ruling PML-N’s political concerns more than its economic reform agenda. For one, it has left its traditional support traders virtually untouched. Nothing except such political imperatives explains why the Finance Minister did not levy any direct taxes on retail trade even when the government has talked a lot about it of late. At best, the government can only hope that its proposal to levy higher taxes on non-filers trying to buy or sell property will force them to join the tax net voluntarily. At worst, it will force more people to engage in cash transactions and, thus, increase tax evasion. While there is a proposal to levy federal excise duty on property, real estate developers and agents have been shielded from any additional tax burden. This also stems from political expediency: the PML-N cannot afford to anger the middle class other than those sections that have already turned against it. Countries cannot be run on charity but on taxes.
—The writer is author of several books based in Islamabad.
